Business

Deficiency notice needed to recover erroneous refund

Article Abstract:

The Fourth Circuit ruled in 'Singleton' that the IRS must first issue a deficiency notice in a timely manner before it takes action to recover an erroneous refund. The case involves taxpayers who were refunded by the Service the remainder of the general business credit that they did not use. The IRS later informed the taxpayers that their tax liability was recalculated under new tax rules and that they now owed the Service the full amount of the refund plus the increase in their tax liability resulting from alternative minimum tax law changes. The agency made a supplemental assessment representing the deficiency and the interest, but failed to issue a deficiency notice. The taxpayers filed a suit against the IRS for not complying with assessment procedures. The court ruled in favor of the taxpayers.

Refund that offsets deficiency is not a payment for limitations purposes

Article Abstract:

A district court found in the case 'Consolidated Edison Company of New York Inc.' that refunds used for offsetting deficiency is not considered a payment for limitations period purposes. In this case, the taxpayer argued that the offset of its overpayment should be treated as a payment for limitation purposes under Sec. 7422(d), which provides that a credit of an overpayment for fulfilling a tax liability is a payment for limitation purposes. However, the court countered that case law mandates that the offset be for different types of taxes or different tax years before it can be claimed as a payment for these purposes. The legislative history of Sec. 7422(d) emphasizes that the provision is aimed at enabling the IRS to offset one class of taxes against taxes of another class.